Deficit, Economic class gap, the wealth Tax, and Fairness under Obama
Well, we have a deficit greater than the $400 billion that we could handle forever if GDP grows the usual 2.5 to 3% in the future. And it was caused mainly by GWBush, and makes worse the inequality gap between rich and poor, and is made worse by every GOP plan being put forward in this primary season (In the battle to cut taxes on the wealthy the most offset by the ending of programs/services for the public, Santorum wants to lower corporate taxes to zero, sigh ….) –
We are looking at a current year deficit of $1.3 T of which $800 B is structural – meaning we can not just stop active war and grow GDP and make it go away – and which gets worse if Obama refuses to restore the Clinton tax rates for everyone and instead just pretends to chase those making more than $250,000. We are also looking at the worse inequality gap since the roaring 20’s, with the 400 richest Americans having more wealth than the bottom 150 million Americans put together.
A modest start on fixing both problems is a wealth tax, taxing labor earnings and capital earnings at the same rates, and taxing the current year increase in the value of capital assets, as the Clinton rates return for everyone.
And worries about the extremely rich is not just coming from Americans – Australian Federal Treasurer, Wayne Swan, wrote an article for The Monthly magazine in which he noted the risk of the extremely rich to democracy via their buying media interests which control the framing of debate and the facts provided and thus control the outcome of policy discussions. Any tax changes need occur sooner rather than later given out controlled media becoming more controlled in the future.
The middle class has not had an increase in household wealth in years – last years 4th quarter gain for the nation was entirely from stock prices – an asset that is in dollar terms de-minimus for most Americans (90% of stocks/pension-fund financial asset holdings are owned by the richest 10 percent of Americans with the top 1 percent owning 38 percent). Most Americans have the vast majority of there wealth in the value of their homes – so as the value of financial assets held by American households increased by $1.46 trillion in the last quarter of 2011, $1.3 T of that went to top 10% and $554 B of that went to the top 1%.
Given that the US top 1% have a net worth of about $25 trillion, a wealth tax of 5.2% annually brings the budget deficit down to zero. But many suggest that is two high – more than the assets earn, and a tax of 2% is the “fair” level. If the top 1% paying a wealth tax is too many, we could just grade the tax into its full 2% at $7.2 million of assets (the point where you are in the top 1/2 of 1% in assets owned in America). Yale’s Bruce Ackerman and Anne Alstott have calculated that 2% wealth tax on the 0.5% richest would generate $70 billion a year, or $750 billion over the decade. It’s a start on the deficit reduction, a start that would hurt the economy less than any other approach because the rich do not spend that much relative to income/assets and thus changes to their income/assets do not affect GDP as much as say a payroll tax where folks spend most of what they make.
A wealth tax is fair and necessary, as is treating wages and investment earnings equally, if we are ever to stop the growth of the inequality gap (capital gain annual accrual taxation is needed but less doable because of accounting requirements and a Congress unlikely to go that far, and Obama seems unable to allow the Clinton rates to return for everyone with the middle class tax breaks in the GWBush tax laws re -enacted after the election). And a wealth tax ends the hammer the rich and corporate have over states that wish a progressive tax – saying their incomes varies widely from year to year so income tax progressiveness will lead to tax collection boom-bust cycles of rapidly rising revenue followed by decreased revenue, forcing disruptive “emergency” cutbacks on the way down. Wealth does not change that much for the rich from year to year so any wealth tax produces a very stable flow of taxes.